Pak finance minister in stand-off with central bank

Wednesday 12th July 2017 06:31 EDT
 
 

Pakistan Finance Minister has entered a tiff with the country's central bank after an unexpected currency drop prompted instant response from the government. Ishaq Dar said he felt “deep concern and indignation” at the “artificial” drop in the currency, which is said to be a deliberate move by the central bank to shore the country's economy. Dar said that people were “exploiting the current political situation” a hint at the current investigation into the alleged corruption by Pakistan's Prime Minister Nawaz Sharif.

The Pakistani rupee fell from 105 to the dollar to 108, last week, reaching a level unachieved since 2013. While Dar did not take any names, officials at the State Bank of Pakistan said the central bank had backed away from supporting the currency in an effort to boost the country's foreign exchange reserves. An official said, “There is no artificiality. The Finance Ministry is just not willing to understand the reality.” The Apex Bank even issued a statement saying, “The exchange rate adjusted in the market and SBP is of the view that this depreciation in the exchange rate will address the emerging imbalance in the external account and strengthen the growth prospects of the country.”

Analysts said the high imports and low exports have been encouraged by the fact that the central bank has kept the currency artificially high, trading at about Rs 105 since late 2015. The central bank imposed import controls in March, on a range of goods as it looked to stave off a repeat of the current account crisis that led to Pakistan having to be rescued by the International Monetary Fund in 2013. Pak's current account deficit is expected to widen when the government has to start paying Chinese companies for projects that are part of the $55 billion China-Pakistan Economic Corridor. Some predict the country would be forced to return to the IMF at some point, while others say a crisis can be averted by allowing the currency to devalue.

However, ministers believe that the central bank is deliberately taking advantage of Sharif's political difficulties to assert itself. “There is uncertainty caused by investigations against Prime Minister Nawaz Sharif and his family. Investors are becoming more and more nervous about the future,” one said.


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